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This Element is an excerpt from Technical Analysis Plain and Simple: Charting the Markets in Your Language (9780137042012) by Michael N. Kahn, CMT. Available in print and digital formats.
How to handle upward or downward “explosions” in market prices--and how to keep yourself from being fooled by them.
Sometimes, market perceptions change so rapidly that the market seems to explode higher or lower. The extreme example is a market crash, but we can see this rapid shift after takeover announcements or surprising earnings news. This is sometimes exaggerated by news emerging between trading sessions. Technicians call these situations “gaps” because they leave a void on the charts.